German Consumers Help Deliver Faster-Than-Expected Growth

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Strong consumer spending in Europe’s largest economy fueled a faster-than-expected recovery in the second quarter -- one that is now looking increasingly uncertain.

German output increased 1.6% in the three months through June, compared with an earlier estimate of 1.5%, the statistics office said Tuesday. The rebound was driven by a 3.2% jump in household spending, strong fiscal support and rising capital investment.

While this puts the economy on track to reach pre-crisis levels in the next few months, according to the Bundesbank, risks to the outlook are emerging that mean this year’s rebound may not be as strong as previously anticipated.

Manufacturers have faced unprecedented struggles with shortages of raw materials and other supply-chain bottlenecks. Rising infections pose an additional threat, even though government officials are trying to steer clear of another lockdown. 

“Supply-chain frictions have become a bigger threat to the economy than Covid,” said Carsten Brzeski, an economist at ING. “It currently looks as if these problems could easily last until the end of the year, potentially putting a cap on growth.”

In June, the Bundesbank predicted an expansion of 3.7% for 2021. Economists surveyed by Bloomberg in August forecast growth of 3.2%.

A purchasing manager’s index showed on Monday that private-sector activity in Europe’s largest economy slowed in August, with services taking over as main growth driver. 

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